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>> so i think that tension needs to be resolved one way with the other, and i think it needs to be resolved around a more foreign policy guidance. the way it works now, let's change, since my day, is we used to sit down with people from the state department usually the deputy secretary, once or twice here and say what's on your mind, what you think of the important countries we should be concentrating on? i hope that when i was undersecretary there was more
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conversation, but there's no real guidance. and i think that there needs to be. the second thing there needs to be absolutely is a we organization of the bbg. the bbg has now have agency. there's no ceo eric one of the strangest organizations in all of the federal government. the board itself is the head of agency, and the chair really has no more power than any of the other governors. it's kind of a zion to run the show. and by the way, i'm not sure, as the chair, the new chair -- >> nominated. >> nominate, that's all. this is the way that administration's and congress treat this organization, where more money spent on public diplomacy as far as we know them in any other program. doesn't even have a full complement of governors. and, frankly, is in that position.
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so i think something needs to be done. i also think the bbg gets a really bad rap from people who really are not particularly well-informed about what it does. it does an amazing job in 60 different languages. broadcasting more hours than cnn does. and we don't know about it because we're not allowed to anybody in the united states or show anybody in the united states what's going on. so here is a very, very valuable public diplomacy asset that is not being properly used. and it's not the fault of the people at the bbg. it's a lack of understanding at higher levels of government about how important it is. >> the british have a director general, they may wish of more of a sports team. >> i agree with jim. when i went on that board, it's neither fish nor foul, part of the problem but it has these
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constant leadership challenges. frankly, my sympathy goes out to the folks who work there and folks in the field because it's very, very difficult to do. and i know that walter isaacson has opposed the sort of significant re-org which i thought made a lot of sense. frankly, i'm not sure where it is these days. but made it more hopefully would make it a highly functioning organization. it is, we need every tool that we have in our arsenal. we need to be able to deploy them effectively. and i think better coordination i think would make a lot of sense. at the same time you got to be sort of aware of the fact that it does have its journalistic standards mission which i think are important. in terms of going back to my previous comment, a whole concept of authenticity, you need to have that. we weren't able that schmidt i think there are about 40 on the team now, but what we did was
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put in place, which again i think you had started do a much better coordinating function between a state and dod and others who are doing the same thing so that frankly we can take advantage of the numbers that they were able to deploy against a similar mission. so it's in a much more coordinated function with the state actually helping to provide, or at least that was the plan. i have been there for a year, to help provide the messaging into that group, whether the group was housed at state or at dod on the theory that the civilian side of government was better able to understand some of the messaging and would be able, utilizing the resources and a very coordinated fashion to play a really important conversation and games. i can tell you how often i would be out, secretary would be out and people would say well, you know, if you don't believe what we are saying, why aren't you in their saying it? one of the great things of our
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country is we debate. the more that we can go into these environments which are very, very important places to be, and debate our core value, not just explained them, not just lecture, but actually debate our greatest strengths i think will be stronger. so that was one of the ways we really tried to do that. and also to take the benefit of the folks who were there in the field, give information as to who was the important audiences for the bbg. >> can i just clarify one thing? when i said more guidance from foreign policy leadership for the bbg, i certainly didn't mean that the bbg should forsake or distort or anyway jeopardize the journalistic values. very, very important. but for example, the bbg's, the board of governors decide where the assets are allocated. in other words, if the governors
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decide we're going to put all the money into india, it's their decision rather than the part of the more strategic decision-making process. congress would get involved if all the money went to one country. >> do you think? [laughter] >> there's certain country's bbg would like to get rid of that congress wouldn't allow and that sort of thing. but i'm guessing it really needs to be part of really part of the foreign policy apparatus. >> i want to open up to question. we have time for about 20 minutes. please keep them brief so we can get as many as possible. go ahead. >> first time i ever saw -- was 1967 in taipei at usia. it was in chinese.
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but now i work with two groups. one is dhi esper diplomats which serves the diplomatic community here in washington, and arranges events to show them what goes on you. also people to people international who post the foreign officers at the national defense university. was happen with this is weak, and we take these our homes and arrange events with them, then go back to the home countries and remember us. when diplomats wife went to thailand, she's japanese and she set up an organization in thailand. last summer we also did the international children's festival, where 24 embassies got to show the american public what they do and the american public got to learn. one of the things, one of my
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friends is also with, what was a public diplomacy in afghanistan, out in the country trying to help women. so the fact that the public diplomacy goes a lot of different ways, we can get the diplomats to come here and military officers, they go home and preach our views back there. >> i think it's a good question about what's the role of cultural diplomacy, and particularly what do you guys found as effective? >> i like what you said about alumni and we in congress over years ago were a bit perplexed when found there was not a very effective alumni outreach as part of public diplomacy. that has since changed much to the benefit because the concern was with either brought folks to the united states or we interacted with him and programs overseas, but that wouldn't have an ability to reach out to them. so for example, if we engage
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with in any scientific field and were sent them a science envoy, could we have that science network so we just weren't preaching to the same 50 every frickin' time there was a public diplomacy event. and that was key and continues to be an aspect. but it's a budgetary aspects. the other problem, alumni program, particularly and her younger outreach programs where we bring them in, we have an exit program to access is where started under the bush administration where we brought children, particularly in the muslim world, to teach them english to english is the hottest commodity of the. we would bring them in. anywhere from six to eighth grade, teach them for two years, teach them english and a foreign country. and hopeless then we could engage them in the yes program to one of the problems in the yes program was we didn't have levels of english proficiency so kids come here could survive. they simply couldn't communicate with the problem is the access program is so big that not
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everybody can get to the yes program. how you engage those children and those students so that you don't just throw them back into their schools where perhaps the american methodology of education is frowned upon and instead of being embraced, they are abused and then you get the boomerang effect. instead of liking the united states they say i went to the program and not back in my school and they're beating me every time i raise my hand to ask a question to you have to be very careful, but it's important get embrace. >> one thing to add. i agree with paul on that in terms of from a private-sector background, this is an investment we are making in people, and we need to leverage that investment. i would say that there are tools that are going to help us do that and do it better where we can actually now, as we capture the data about the alumni, be sure that we reach out. there was an institutional barrier as well where some folks
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who have been at usia did not want to actually reach out beyond that because i what if we have an important event, let's reach out to our alumni and provide them with information that they can take into the communities. and they were like knowing no -- no, no. we don't want to do that. worst thing is very precious dollars to achieve our forum policy goals and objectives. if we are not doing that, we shouldn't be spend those dollars, and clearly a huge event in her educational programs whether it's access or yes or any of those programs. does become very, very hopefully in most cases positive and powerful advocates to reach out into the communities in ways we sent we can't do. so it's important to leverage it. one of the investments we're making was to create databases that made this easier for our indices so that they could do it because they are under huge, huge pressure. we keep asking more and more of
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them. we keep pulling the resources out. is where technology can be really an important and powerful vehicle. i think initially we had to vent -- said several minutes of these people and we have data at about 50,000. i think they've done a lot, put up huge effort trying to improve that. >> we are at a time in the administration, the second term of the administration were question of legacy often comes into play. people start talking about what will this administration be remembered for. so i kind of wonder what you, if you have the opportunity, which he did when you're were in office, at least two of the dead and maybe the others had the opportunity, if this president
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and the secretary of state, a 20 minute conversation about public diplomacy and what could be done that was particularly useful to leave something behind for years from now, what would be, what kind of things would you bring up? just to give you time to think about, let me remind, the bush administration under secretary glassman together with microsoft and a bunch of other people put together a conference of dissidents from around the world to talk about how to use social media in fomenting revolution. and our indices in some places were a little nervous about having these people come to the u.s. it's possible you could see the end of the arab spring at that conference held at columbus university in 2008. there's a matter of the public diplomacy people coming into the
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state department are often shunted off into consular work for eight years or whatever, for a long time before the ever get to any public diplomacy were. it's as though you're in the military and call your officers and send them off to, i don't know, do social work and then suddenly brought them back and said now you're in charge of the squadron. well anyway, but -- >> well, thank you, ambassador. and by the way, as far as the arab spring is concerned, i know that i was personally accused by some right wing bloggers having omitted the arab spring but i wish it were true, because of this event. although the event enabled me to do. the thing that was most fun of all of all the things that it did when i was undersecretary, which was that i got to call on the egyptian ambassador. i don't know if you really does,
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and made them come to my office and dressing gown which is sort of a great thing you can do traditionally as a diplomat. because i warned him that if he stopped the last of the egyptians that we want to come to this conference of doing this, the united states government would take a very, very dim view of that. anyway, so that was fun. but, you know, i really think, i think the answer that is sort of the broad answer is, in fact, building networks. whether that's something, is that the current legacy that a president would say hey, we don't all these networks, probably not. but i do think that's what you leave come and networks can be built through alumni. i think that's a great idea. and just identifying the alumni becomes very difficult. very happy to see that the
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network that was started with the alliance for youth movements, alliance of youth movements has been picked up by secretary clinton and by judith, and it's still around. and that's only one example, but many others that you do, you know, not secret but i don't think i really want to talk about. i think that ultimately that's the most them important kind of legacy. i do think that as far as president obama is concerned that he really has an opportunity going forward to do more public diplomacy. but for reasons that i said, number one, is cost effective, and number two, it is, it fits the technology of the time, much better, frankly, and any of the other assets that can be deployed to reach, to reach the national interest. so i think, i think if he were to elevate the importance of
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public diplomacy, and you can do that dramatically three organizations are in a different way, say we're going to take a billion dollars out of military budget, give it to public diplomacy, well, that would create a kind of change that would produce i think an important legacy. >> i think, you know, if i were to look at it, probably along the lines that jim has described it, you sort of have an understanding and acceptance that the world has changed. that we will not be able, we will not be able to move our foreign policy goals and objectives forward without having a better relationship, better understanding, engagement with people all over the world. we simply can't do it. the world has changed so dramatically and so fundamentally with technology and with information and power now being widely dispersed, that we've got to find better ways of
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influencing foreign populations. we simply can't go forward. and i think that that is something that this administration understands and has taken to heart, and that's what all the things that we put in place was to do that. we don't have an alternative the we simply cannot go forward to do the things that we needed to in our own national interest and less we understand that, how do we facilitate those dialogues, how do we build the networks in a very meaningful way. p.j. talked about what we found we look out egypt adhere to everything that was going on. people, you know, all over governments here were likely to we talk to? whose important? here's the scoop. right now industry there's nobody who can raise their hand and so i can identify who was the leader of egyptian revolution, because there wasn't one. it was coalition's ever-changing coalitions of interest moving. as you look at the social media
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map you see that there was no one leader. so we have got, we as a government and, frankly, governments everywhere have got to figure out to do that, how did he get into that marketplace of ideas. one of the things that we did, not surprising with my background, i was very focused on consumer research, understand what was going on. one of the things i found it in government, we spent a lot of time, hundreds of millions of dollars, looking at economic elites, political elites in others, looking through different lenses. if you just look at it that way, you don't look at it to a more classic consumer lens, then if you are a young 20 year old person in pakistan who is never had a job or doesn't want to a political party, we have missed you so now, in understanding which were thinking about. potential to are very serious detriment. so getting out into the marketplace, understand building those critically important
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networks, engage with people, not preaching to them, i think would be a great legacy. >> i think the legacy -- i don't think the legacy has been written yet. i tend to look at publicly diplomacy primer through a -- ultimately the best public diplomacy is our policies that reflect your interests and your values, and as i said before, the gap between what we say in what we do is as narrow as it can be. and then challenge for public diplomacy is that we make policy on a local basis, country by country, but we communicate global your answers always going to be changed between what you do, vis-à-vis a particular country, and then how it relates to your broader pronouncements. so i think in terms of legacy, i think probably the challenge for the administration, second term, is can you connect cairo and
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oslo, you know, to incredible speeches in 2009, to decisions that will have to be made about bahrain and iran. and if you can connect cairo to bahrain, then how do we feel about democracy, we understand there's a concept but how does it apply to a monarchy that is under siege, that's one. and then, how do we connect oslo as the president talked about just war to a decision that has to be made about the prospect of using military force to solve a difficult and consequential matter of iran's nuclear mission. if you can eventually draw a line from one to the other, one to the other, then that would be a significant public diplomacy legacy. >> i think p.j. is right, the
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legacy august the, you four more years ago but it's going to clergy been on the outcomes of withdrawal of iraq and downsize in afghanistan and how that goes together goes well, you get a great legacy. poorly, it will inflame the region and in packaged in a. the one thing we've not yet had a chance to touch on in this discussion, is the role of course of china. secretary made big push for internet freedom. i think this will be huge but i think make sense as we discussed social media, it's great if you do social media but if nobody can read your stuff because you're the great firewall, not quantity a lot of good. the amount of resources and effort we put them towards that will be huge. with issues in russia where radio free europe radio free europe basic or shut down its operations because they can't get the licensing because the government refuses to allow licenses to reading stations. we're going to see that. that to me, how we continue to use technology to push public
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diplomacy forward towards regimes that are going to use technology or intimidation to prevent that i think is going to really determine how the next four years ago. [inaudible] >> i would. it's a law that stops the state department from communicating with americans. it does present a lot of problems in an internet age. can i just add one thing? what p.j. said reminded me that i may have forgotten the most important legacy of all, and one of the things i meant to say here, which is i think that public diplomacy needs a big success. i think for public diplomacy to grow and become more important, we need to be able, the mecca people need to be able to point
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to something and say hey, that works. so for example, most americans believe that radio free europe helped bring down the iron curtain. and if that's true. but what can we say about public diplomacy in recent years, despite the fact i think there've been a lot of achievements? it's hard to answer that question. and in my view that answer may lie in the country that p.j. mentioned, which is iran. where we can point to something and say we actually had an effect there. i think we actually had an effect in egypt, and one of the things that we've done at the bipartisan policy center is to codify that affect. what did america do in egypt that might have helped a little bit in the arab spring. spin we have time for one more question. >> i'm a senior policy analyst
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at my question involves the strategic purpose of public diplomacy. a bit of a discussion day about strategic versus tactical, so during the cold war with figures of public diplomacy bringing down the soviet union. what is its purpose now, a lot of people said it's the war of ideas, against silence extremism but an open way of sort a better, more grand strategic force and is wondering if i could get your thoughts? >> great, terrific, thank you for that question. does the war of ideas still a viable concept or have we moved past that? >> i think it's the most viable concept, although i have to say that during the transition i was warned by all the transition people not to use that term. i don't know whether the term has been banned or not, and i understand war, we don't like
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war. we do like ideas. so i do think whatever you want to call it, ideological competition of ideas is good. we use the term strategic engagement because that means whatever anybody wants it to mean. the fact is we are in an ideological struggle. i think one of the differences between the bush administration and the obama administration is that we believed, and a big many of us continue to believe, that this is a long war not against al qaeda. al qaeda is one manifestation but against a particular ideology. so our national security goals were, one, keep america safe, too, help promote freedom around the world. and those two things are linked because we believe they were linked. free countries are less likely to make were on their neighbors.
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so i think that to me the grand strategic goal of public diplomacy is the same as the grand strategic goal of foreign policy and national security policy, which is to achieve those two goals. and i think you never ever want to forget that those are the goals that need to be achieved. and public diplomacy's role in that i think does, in fact, revolve around the ideological part. and it is, not to quote myself, i hate to do that, but i can't say it any better. [laughter] >> a great man once said. >> the aim must be to ensure that negative sentiments and day-to-day grievances toward the united states and its allies did not manifest themselves to violence. we are never going to change everybody's minds as they believe exactly what we believe. but most believe that the united states is out to destroy islam. so how do you deal with that?
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one whale to do -- to deal with that is to say no, that is not to. we're in boston, we're in kuwait. we have 2000 mosques. i don't think a straight effective quite frankly. i think a much better approach is an approach which combined with the kind of things we do with exchange programs and other softer means, public diplomacy 2.0, to get to a point where people can believe that. that the pernicious belief. it's wrong but people can believe. it doesn't mean they will kill us. so those are the goals. it is a battle of ideas, but it's a battle of ideas that will take a long time to win. i do think and public diplomacy we sometimes forget the imports of that ideological struggle, which may be the most important of all. >> i think i would say it somewhat differently but you've heard me say earlier that i
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believe quite passionately that public diplomacy is there to ensure that everything we do that we achieve our foreign policy goals and objectives, which frankly very country to country, region to region. and so in some parts of the world, some of the struggles we've been talking about are higher than they are in others. but, frankly, what we're trying to do to be sure that public diplomacy was closely aligned with the policy side of our diplomatic efforts, to be sure if we were not, if you could not demonstrate that a program or an initiative was link to our current goals and objectives, then we shouldn't be doing that. when we went through a review we came across a number of programs which were not tied to current policy goals and objectives. i carry member frankly at the top of my head what some of them were, but there were a lot of dollars. for example, being spent in
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projects which evolved out of post second world war to europe. it was a huge about of money being spent in that effort. and i was like that was great 60 years ago but it probably doesn't make much sense now. so we went through a very strategic review, region by region, and allocating those dollars, being sure they were focused in an appropriate way to help us achieve those objectives, whether it was in china or india or latin america, what have you, working very, very closely with the two have to be closely aligned. >> pg, real quickly. >> i would say if the cold war was a competition of two systems, at the end of the cold war, more countries than not wanted to join our system. that's the thrust of a terrific book by john eikenberry of princeton called the liberal leviathan which we have built this modern international
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systems web of networks and associations and groupings and alliances, and everyone, it's an open system to anyone who wants to join and play by the goals can do so. and it is still a system that draws people from various parts of the world into the web that we are, what is the imf, world bank, united nations, nato, et cetera said. to revise architecture that we are building in asia. so that is the essence of the competition, probably at the end of this is exactly what the new yemeni president did. he was willing to stand with the united states and do so publicly. and that is the ultimate challenge. as jim was saying earlier, mutual interest, mutual respect, and i would add to that shared responsibility where we now that
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the solve any international challenge, no one can come to the united states can't do it alone, but, you know, you can't solve the challenges as her former boss hillary clinton said, you can't solve any global challenge without meaningful participation by the united states. and ultimately it's encapsulated in the administration's approach to libya, you know, where the president was being pressured by john mccain, lindsey graham, greg, kenya people on the hill go faster. and the president spent a little more time to make sure that there was consensus in the region, resolution from the united nations that gave legitimacy, and partners willing to share the burden to get something meaningful done, which was the transition, difficult as it is, that is underway in libya. that's the way the united states prefers to do business. the more we can do it that way, it reinforces our policies.
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it reinforces our values, and that probably is the most meaningful thing we can do in terms of promoting outcomes that have public diplomacy at their heart. >> i was going to say, if you don't have the benefit of the doubt, just let public -- [inaudible] >> let me conclude by asking you a yes or no question. looking forward for years, over the next four years, is there any realistic chance of significant reform, we organization of public diplomacy, or significant increase for public diplomacy? >> yes, yes, no. >> which one is the no? >> possibly the bbg. we have a thing called a debt out there. that cliff. spent yes, no, no. no on reorganization, no on
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diplomacy. >> that i mention i moved to new york so i don't have to wait in? just based on my experience from which is now a little bit out of date, yes on smith public it on funding communist, i think that is unrealistic to expect that there'll be significant funding, in terms of transfer we did a lot of reorganization with state. i think there's always work to be done in that, and hopefully that will be more. >> yeah, i think that, i think smith bought and bbg we organization does. i would say yes to the. and funding i would say probably, probably not. although that would be unfortunate. it seems to me that there are ways to move money within the state department budget that would make the state department as a whole more effective by
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putting more emphasis on public diplomacy. and certainly, moving national security dollars around to diplomacy would also be helpful and doesn't necessarily have to all go to the state department as part of public diplomacy. also, can i say something i forgot is in the beginning? i'm going to say two things. first, i want to thank gw, and i gave my a victory address, if you want to go by, here on january 14, 2000. i saw marc lynch in the hall. i know he couldn't hear but i wanted to thank you for the. it was right nice of him to allow me to do the together thing, i mentioned a book that p.j. mentioned, the eikenberry book, especially to the students were here which is the righteous mind. to me, and most important factor in public diplomacy is how to change peoples minds? and i think it's a very, very deep and important question that
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he explores, the unfortunate we didn't have time to talk about today the we talked about a lot of real interesting things spent there's a lot of state department people here, so who's budget are you taking the money out of? >> i think i gave a little hit before. i booted to thank that we should, we should, i'm reading a book in which why either so many embassies, somebody has are intended the telephone. so that was a while ago. you know, i just think we need to look at what are our priorities? how do we reach these important national goals? and is the way the state department is structured the best way to do that? look, obviously it's easier -- a great job of organizing public diplomacy committee should you do that then reorganize the whole state to partner. i'm just a shifting dollars. >> i have to say i started off
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my tenure there by saying this will be real simple. will just take money from the defense department. that didn't go very far, let me see. but one final point on budgeting. each and every one of you in this room have an important role that you can play if you choose to do that. we need to do a better job of explaining to the people of this country why this is so important. and ignorance gap across the country in terms of what we do and what we spend on foreign relations and foreign affairs generally is ridiculous to the average person thinks we spend 10 to 20% of our total budget on it, which is clearly much less than we do. but that is a very challenging thing that our colleagues in congress face from their constituents and why are you spending all this money overseas when, in fact, it's very small. we need to do a better job of educating people in terms of what we actually stand and why in fact it is so important. and that conversation needs to take place frankly across the country and outside washington.
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i know p.j. tried very hard to do that, but each of you as you go forward can play a critical role in helping that dimension of what we're talking about. >> and by the by, revising smith mont, i think revising smith mont would help do that because a lot of people are shy about talking about what the state department does, will we do in foreign policy because smith mont come into smith mont doesn't necessary stop you from doing that, but it's an excuse to not do that. >> didn't rid of smith mont would enable voice of america, corresponding and country, cnn, msnbc, fox news could have no interest of supporting but if you have deal with reporters and other pieces picked up by american media with as little thought our radio free europe or asia, that which with american taxpayer what they're getting for their money. last word. the other things, we talked about public diplomacy, nontraditional. so the bush administrations had
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far program, you think it is a public diplomacy? limited, also, the score, huge public diplomacy. and the question is how do we can leverage those not state department aspects of public diplomacy. when the department of defense and the mercy ship for tsunami relief, you don't think that's public diplomacy? i want to get back to china. i think it's just so important that we continue to focus on that and same way my generation and a buddy, we all studied russian. now they're all starting chinese. administration has this 100,000 strong program, over the course of four years they want to get 100,000 americans studying mandarin in china. we've been talking so much about bringing people here, is so important at the same time government funds be used to send potential future american born policy leaders and thinkers and shapers overseas to experience, you touched a walk in someone else's shoes to i think is great programs there as well. it's a continuing cycle.
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spent i have to go teach. >> there's also reason to be optimistic. and what we just went to hear, which was a fascinating election to the rest of the world, and contrast would talk about china, contrast our vigorous election, crazy as it was, and the current ongoing chinese election process, which is in a dark room, you know, and very mysterious. that's why i'm optimistic. despite of all of our failings and flaws, we still retain that appeal. we have to work on our internal politics and understand what the fiscal cliff and the rest of the work is paying attention to the fiscal cliff, but when people look at the competition they keep on coming back to the united states. >> please join me in thanking our great panel. a wonderful job. thank you very much.
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[applause] >> [inaudible conversations] >> an[inaudible conversations]
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>> on "washington journal" this point, we were joined by republican representative ron paul of texas. a member of the foreign affairs committee. he will take your questions about today's hearing on the attack on the u.s. consulate in libya. you will hear about the fiscal cliff and independent senator bernie sanders of vermont. also, the kaiser family foundation will look at friday's deadline for states to establish health insurance exchanges under the affordable care act. "washington journal" is live on c-span every day at 7 a.m. eastern. >> you are watching c-span2 with politics and public affairs, weekdays featuring live coverage of the u.s. senate. on weeknights, watch key public policy this. and every weekend, the latest nonfiction authors and books on booktv. you can see past programs and get our schedules at our website, and you can join in on the conversation on social media sites.
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>> tuesday, "the wall street journal"'s ceo council held its and a meeting in washington, d.c. next, former spanish by minister jose maria aznar gives his assessment of the european debt crisis and future of the european union. this is 30 minutes. >> [inaudible conversations]
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>> [inaudible conversations] locked into this cycle of austerity and contraction. can you give us a sense, you were prime minister of spain for eight years before this crisis broke, can you give us a sense here of what, about serious europeans are and what needs to be done right now to come out of this tailspin the european economy seems to be in? >> first of all, let me express my gratitude for this invitation. i'm very pleased to be here. thank you very much. and good morning, all of you. in europe, several hours seems very important, pleased to
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resolve. but personally i consider there's a lot of competition between policies. given the history of the euro, single currency, if that's the case, was combination of flexibility one hand, and discipline on the other and. as you combined both, the results are good difficult is that you forget that discipline, you have a problem. you eliminate flexibility. and now the moment is how it's possible to recover growth. i think that growth is a consequence not exactly of the economic cycle. not exactly of automatic decision, is question of good resilience and good policy. and good policy is difficult.
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bad policies, differences, good and bad economics. must recover in europe at least three key questions. discipline, fiscal discipline to second, to create a financial union, and second, to start a serious agenda over agenda for the future. if we fail in these three key questions, it will be more and more -- [inaudible] every day. >> you were prime minister of spain. you in some ways one of the founding fathers of the year. you were prime minister when the euro was launched. it seems such a good idea at the time to a lot of people i have to say, speaking as an english then, not all of us share that view and some people stayed out of the project. but are the problems now so great that they call into
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survival, call into question the very survival of the euro? can the euro survive as it is currently constituted, or does there need to be a breakup? >> in my view, the situation, the euro -- [inaudible] we have created a very important -- around the euro. [inaudible] and i think everywhere, everybody in the euro zone want, like, that the euro persist in the future. i think the euro will be robust. the problem has to be more -- [inaudible]. my personal express is the combination of this flexibility is a good question. i remember very well when, 1976,
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in the beginning of the transition, spain walked in, too many people. 1996, spain working, 2 million people. in 20 years, because it was incapable to create one single net job. eight years after spain working, 17 million people worked. eight years more after the socialist government, the plague of the socialist government, spain continued working, 17 million jobs. i can't explain the difference between good and bad decisions. >> wasn't some of that growth that you enjoyed from the early part of the 2000, late 1990s, wasn't it built on things the euro itself brought you, very
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lowest rates, tremendous capital inflows would have interested, and enough implications of the banking sector with a lot of bad loans in the banking sector but in the end wasn't a lot of that growth lucy reed really and now you're paying the price? >> you are making sustainable things if you make bad decisions. if you're very disciplined in the bad decisions, you can be, to have a balanced budget, you can take decisions to break this balance. it's a bad decision to it's a consequence to the bad decision. look here, the decision of -- [inaudible] the administration to the revenues for the country, or t try,. [inaudible] very important debate. but you breakup, you breakup the
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logical -- summit you have a research project we have a problem. [inaudible] we can look in europe today, different statistics changes. for instance, if you ask european leader, different than me, they can't explain you that we are very happy with victory of mr. obama in u.s. obama is better than romney for our interest. this american policy is very detrimental for europe. because -- [inaudible] more higher price of raw materials. and less gross.
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and during the next years, the domestic demand would be very, very, very weak, and we must expand our possibilities and export, and exportation is. but if it is possible for us to export, well, the situation will be more complicated. and this is, we need a consequence of a agreement between european leaders, and american leaders. if you're trying to recover the economy, with very sound pillars. >> let's look at what's happening in spain right now. you got a situation the last couple of months where there seems have been some stabilization in the bond market. since the ecb, since mario dragging it is commitment that the ecb will buy up the bonds of
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spain and italy and other countries and possibly, if there is a bailout essential because there is pulled from the european authorities to financial support. to fill the holes in the spanish budget. so when the markets is him a great will happen and the bond yields came down. and yet were still waiting for your successor as prime minister to ask for this bailout. but he seems to be reluctant to do so sore in this game of chicken where he is not asking for the bailout. the markets are still expecting him to ask for the bailout and, therefore, expecting the ecb to bail out, to buy out the bonds. when is he going to win is going to bite the bullet and get this bailout so we can actually start to do the things that the markets releasing to think are necessary to get europe on a more stable paths because well, three, four remarks.
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without bailout, spain needed more reforms. we have reformed our state. we decentralized -- [inaudible] the elements cohesion of the country. first of all. second, we must reform our welfare restate. welfare state in this moment, very unsustainable. must make fiscal reform and energy reform, education reform. but anyway, second. in this moment i don't know whether this will mean that's been in this moment i consider the bailout is not critical for the country. >> why not? >> one, because the condition they can establish after you ask
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the bailout may be will be the same policies that the government trying to intimate in spain. an advantage in terms of finance countries, of credit, but i believe you have limited -- [inaudible] and this is a price, a medical term, maybe economic terms will be in my view would be my view, more than -- [inaudible]. the second, but the bailout we're talking about bailout not in the greater terms. bailout not depend only of the will of the spanish government. depend on the approval of the rest of the government's. >> particularly germany, right? >> because it is the most important country. but i am convinced the germans reject any totally the
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possibility spend go ask you don't spank you think germany will veto any bailout for spring? >> absolute. i am convinced of this. so before the german elections, nothing happened in europe spent the german elections are not for another year. next fall. >> one year is maybe, to be only one year, i don't know. but that's one year. >> that's a long time. the markets are clearly expecting something before then. you don't think that -- >> this is reality. it is reality. in a way this is one of the reasons, i explained we must to do a lot of reform, continue to be a lot of reformists, to back spain's credibility or 10 years ago in spain was a country, and today it's a country tripled be. two different countries.
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>> could go lower. spent we might have recover the possibility for this to put credit in the hands would be very important. another part is it's a responsibility, this treaty questions, banking union. banking union for me is a question. [inaudible] this european supervisory mechanism for resolution, and current system. it is the same asset value for the euro in berlin than in madrid. it is a value of the euro is different in madrid and rome, in paris than in berlin. doesn't work. and the only means to guarantee this is to establish this
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deposit system. >> let me go back to germany. that goes to the heart of the european system. at the germans are not going to back a bailout, and they would say why should we? we've got her on restructuring and our own economy over a very long period of time, we worked till 65 or even older in germany, work long hours, we're very productive, we are very productive economy or why should we bail out country country with his to want a very strong social safety nets, where they want a early retirement, whether what have all these things that germans have given up? so that's the german view. that if it is the german get and you have determined either and you have the spanish and portuguese and greek and other on the other side, doesn't it point to a fundamental weakness in the very structure of the euro, that you fundamentally different economies, fundamentally different political systems, and you don't have the political legitimacy? because people in spain don't accept the idea that germans can
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tell them how many hours they should work each week or when they can return. the people in germany don't except the spanish should be able to do what they want to do and expect the germans in the end to bail them out. isn't that ultimately the problem? this is something that is not politically sustainable. >> i agree with you, but this -- [inaudible] the original success for europe is a situation that is possible in different countries, different histories, different historical nations. and objectives. [inaudible] in ukraine, the euro is advantage for european countries. you must finish this. i would think for germans and
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for spanish, for other people, the question reasonably, logical basis. this is the reason for the banking to another thing, if you change political view, and in this moment, in this moment the most important change in europe is the real power of europe, reside in brussels, reside in berlin. and don't forget we have create europe, to create a european germany. and to avoid a german europe. and you have to take a german europe. spent do you think that's where we are now? >> there's not any doubt about this. any doubt about this. the question is, if the
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situation changed political visions in the german leadership, if you don't change political, and they continue the commitment with construction of the euro, the idea of the european union, you can do a lot of things in the future. if not, the question is open, no? >> but isn't that a bigger problem for the non-german people of europe, that you're exactly right. that was exactly what the european union was created. you created a situation now where germany will be peaceably, fortunately unlike in the past, controlling, controlling your. that's not a situation that is acceptable to the spanish. >> depends, if you can influence alongside the european institution, you decide to enforce the decision. this is different. the problem in europe today is that there is not balances in
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european parliament. uk is out of the decisions in europe. out of unison. maybe you can decide to a level. france is in a situation with our my back, the possibility to balance german, nonexistent. .. >> and extend and enlarge the system of values will be
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extremely important. europe and the u.s. looking only this administration, looking only the pacific. i think the problems, domestic problems -- but i believe this is a mistake. for instance, we have the opportunity to create in the next months a very important free trade area between europe and u.s. the next spring. you can take -- [inaudible] france is in february, germany is in february. if you paint free trade, the first step to create an atlantic carrier possibility, sure, send a message of stability to the rest of the world. fantastic. and this is one of the things that can be done with --
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[inaudible] in the next months. >> thank you. and quickly, there's ceos here with a lot of business in europe, and they'll be interested, i'm sure, to hear what the prime minister says about the prospects for european growth. any questions about what's going on in europe? because i have a couple more questions i'd like to ask him. let me ask you then quickly, prime minister, if i may, in spain there's going to be an election in catalonia in the last couple of weeks, barcelona, is it going to be capital of a different can country in the near future? -- different country in the near future? >> [inaudible] [laughter] we are the -- [inaudible] we live the last 500 years now. but nationalism is a problem in europe, you know? where this is a history of --
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after the fall of the berlin wall all the former -- [inaudible] ran. with the nationalists, i think death to nationalism. but with nationalism it's converted in radicalism, is expression of society that this is capable to make or to give every day steps in favor of totalitarian society, no? i predicted this. the will of the spanish people is to keep in the unity of the country. >> are but, again, this goes to the problem it seems to me in europe that is reflected with the euro crisis more generally and these movements for secession in sat loan ya and -- catalonia and scotland.
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>> they differ a little bit. >> well -- >> no, no, no, no -- [laughter] [inaudible] >> no, that's true. >> as exempt as it was in two centuries. we have a constitutional law, and never catalonia was independent, never -- [laughter] >> what i'm driving at is the political discontent the people feel, they feel disconnected and disempowered from their leadership. increasingly, what the euro seems to have created is a system that lacks political legitimacy. you've just said the europeans are going to be essentially led by germany. this represents a lack of democratic accountability in europe where people are simply not able to choose the direction their own countries are taking whether you have a technocratic government in italy, whether you have, you know, what's been going on, um, you know, in spain, your country, and other countries too. there seems to be just a simple lack of power residing in the
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power. the normal power resides either in brussels or berlin, and this is creating tremendous dissatisfaction. >> well, the politics is not attractive profession at this moment everywhere. even in europe. is very tough to spend time in politics. and in europe we live in a crisis in this sense now, but there's different crisis. what thing is the not democratic origin of a tech to accuratic government in -- technocratic government in italy, and the other thing is that in some parts of europe nationalists -- [inaudible] look in the map of europe and thinking, well, the map of europe in the future will be different. this is our opportunity. if you, if you have the right to be independent. i think this is not possible.
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i think we must -- the pillars is our democracies taken seriously and respect our problems, no? it is very easy to, everywhere to establish a negative campaign to destroy another candidate. is more complicated to establish a good program with good policies to recover the current position of a country. but i personally believe in this policy. maybe -- [inaudible] >> no, no. [laughter] but as you look at the u.s., do you see what's been going on in the u.s. in the last few years with a big explosion of the fiscal debt with the failure of politicians really to get to terms with it, with a growing dependency on benefits, a growing proportion of the population dependent on the government?
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do you see signs the u.s. is going the way of europe, the way europe, unfortunately, finds itself now? >> i hope not. i don't know. because it is absurd to establish in europe the same problems of a welfare state in europe. but i only consider that the policy of the current administration, with the new current administration is that to export inflation -- >> expose inflation? >> expose inflation and to put more money, more money every day, well, it's not that simple. >> the federal reserve, you're saying doing that. >> [inaudible] but you must establish very serious programs to -- [inaudible] i personally share the idea that lower taxes is for economy. no more taxes.
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ing less programs and expensing to -- expenses to work. in the future i believe not only for the u.s., but as well for different regions in the country have not improved the competitiveness of this country, this is my personal view. i hope that in the next weeks can be an agreement, a compromise between both parties about this cliff problem. but it's necessary to stand this for the future. because the responsibility of this country is very important. the tendency of the world is now a days some chaotic tendencies. the only country with capacity to establish some order in the world is u.s.
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but it's, let me say, not leading behind
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are the third or largest population in the world after china and india. we have a lot of rich countries. it's fantastic living in europe, especially in the south of europe. [laughter] >> the north isn't too bad. >> the weather is good. the weather is better. [laughter] >> certainly better -- >> but the question is for me, the question is we are -- [inaudible] you consider that this is a
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question of years ago. and it is a question for you. you decided to continue -- [inaudible] the stability that we all allow, and look at the map of the world. the western balance continue to be the wonderful balance of the world. i wish to defend this. in the atlantic you can extend this alliance. look in the atlantic. it is not true that only the future is in the pacific. look in the atlantic. water reserves, oil reserves and land. it's very impressive. and you look in europe, north america, south america, you recreate an atlantic space not against anything, but in favor of the most ability in the world. this is an expression of this
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possibility agreement, free trade agreement, economic opportunity between europe and you can extend the this for the rest of the world. -- [inaudible] >> if you reside your policies, if you base your policy in and just say it is the same, it's not important or, it's the same lower tax system, less tax system we're spending -- [inaudible] well, we have more complications. >> prime minister, thank you very much. whatever the future view, we can certainly agree that if your own -- that in your own career you stood up to people in europe in tremendous political difficulties to support the united states at a very difficult moment for the united states, very rare, and you took a very brave stand. so all americans, whatever they
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think of maybe the future of europe, should certainly be extremely grateful for what you've done for the transatlantic relationship, the united states and europe over the last 20 years. and also you've flown a long way to be here just to be with us today, and you're going straight back to spain this afternoon. so, ladies and gentlemen, please join me in thanking -- [applause] >> thank you very much. >> today the senate armed services committee hears from general joseph dunford, four-star general and assistant commandant of the marine corps. he's been nominated to replace general allen as leader of u.s. and nato forces in afghanistan. we'll be live from his confirmation hearing at 9:30 a.m. eastern on c-span3. today booktv hosts a webcast with author jon meacham, the executive editor and executive vice president of random house who will discuss
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his new biography of president thomas jefferson. see it live at 7 p.m. eastern on next, from the annual "wall street journal"'s ceo council, remarks by former world bank president robert zoellick and former chairman of the council of economic advisers, austan goolsbee, and michael boskin. they discuss the global economy and the so-called fiscal cliff in which automatic tax hikes would take place unless congress acts. this is 45 minutes. >> the former chairman of the council of economic advisers
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under president obama, and michael boskin, who spoke last night briefly and is the chief economic adviser for george h.w. bush and is now a stanford economic professor. so we have a whole world to span. i want to start out with the united states. very few people in this room understand the president as well as us and, goolsby, a lot of legal are asking what is -- a lot of people are asking what is going to come of the fiscal cliff. i'd like to ask you to describe for us how do you see the budget negotiations playing out over the next six months? >> well, it feels to me like they almost had a deal last year. the principal bottle neck last year was not that the president was unwilling to offer cuts, it was that there was a group of republicans in the house who wouldn't go for the revenue. and i kind of think that's still the bottleneck now.
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um, you probably saw the article this morning from hubbard, you saw what boehner said. i take from this collection some optimism that in 2013 the way it might play out is whether we go over, don't go over the fiscal cliff, you know, there's a lot to happen in the next three months that we get to some space where if they did a trillion dollars of cuts and reforms of entitlements, a trillion dollars on discretionary, a trillion of new revenue and a trillion of saved interest which is only because the budget doesn't understand the present value, but, you know, that's okay, if you did that, you basically could sort out a grand bargain in a way that would be, i think, a pretty good accomplishment for both parties. but i think the principal thing in that is can you get a significant chunk of republicans in the house to support anything
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that's got a trillion dollars of revenue in it. >> so you think they reach a bargain. you kind of moved quickly over the cliff, what happens to get to that bargain? >> yeah, sorry, i thought that's what you were asking is. i'm somewhat pessimistic they will be able to sort out that bargain in the next two months, so i'm afraid there's, i think, a pretty serious danger they go over the fiscal cliff in the short run because they're the same people, and it's the same dynamic it feels like to me as what happened last summer. and one thing i'm pretty confident is not going to happen is the president is not going to agree to something that's going to just kick the can months down the road and put everything back again onto the debt ceiling negotiations which still has to come in february or march. that's what happened at the end of 2010. they thought they were doing a bipartisan agreement that would
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show, look, the two parties can do something together, they can agree to extend the tax cuts for two years, and that took away all of the i don't know if you call it leverage, it took away all of the points of negotiation and left only a debt ceiling negotiation in which the president had nothing to offer or demand, and the other side had nothing to offer, and it was just a meltdown. >> michael boskin, robert zoellick, so here we have this scenario a grand bargain with a lot of volatility before we get there. is that how you see this playing out as well? >> i think it's probably going to be difficult to get the fiscal cliff resolved in a major way in any permanent sense in the next couple of months because of what we said last night. the democrats really have a strategic advance that will expire, the baseline changes and thing ofs of sort. republicans have a different set of incentives. i do believe it is not just about numbers. it i disagree with austan's
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argumentization of what caused --, characterization of what caused the negotiations to fall apart. so i think that the following is possible for republicans to go for in the end a serious entitlement reform, probably not as much as they would like, but structural, not just numbers that might evaporate changes in retirement ages and benefit formulas and things of that sort with enforcement mechanisms; that any revenue be a modest portion of the total, perhaps slightly more than they would like, but substantially on the spending side. all the evidence is from all the-world war ii fiscal consolidations is they averaged $5 or $6 of actual, not projected, tax cuts. successful in the sense of both consolidating the budget and avoiding the recession. and also that the revenues come
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from a base broadening, not -- i would propose a people as well as activity, but base broadening, not rates. that's going to be easier to do if there's some tax reform as well and some pro-growth policies along with it. and maybe that's a way they can both agree -- >> we have two people saying we go over the cliff. how about you, robert? are you expecting that? >> well, we've got a lot of deal makers in this room, and what i think is important in this is when you have on the table in terms of tax reform, entitlement reform would make ronald reagan look like a piker. so alan murray wrote the classic book on tax reform. he knows how hard it was, with some or very good people. >> [inaudible] [laughter] >> so the point is, in the fess fess -- fiscal cliff or in this period you're not going to get my of this done.
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joe lieberman outlined what would be a potential approach. you do some sort of cutting, maybe a little bit of some modest revenue, you then move back to regular order which trent lott was talking about last year, but then you need some mechanism like a simpson-bowles ii to enforce the discipline. my worry is, and this is where i disagree with austan. you read bob woodward's book and "the washington post" reporting and, frankly, the people doing the negotiating up there on both sides don't know something about the basics of negotiation, starting with the fact that you need one piece of paper that says here's what we agree on and here's what we don't agree on. so the bottom line if i were a ceo, what i'd be worried about is if these people just talk to each other as opposed to negotiate and kind of pontificate about their positions which is what we see now but could change, then i think the president will be very tempted to say let the tax cuts expire, it's not sustainable because the alternative minimum tax and ore things.
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but he will think it will give him some different leverage going into next year. now, that's gutsy given the state of the economy, but i think people need to be prepared for it. >> that's three people saying we're going over the cliff. let's talk about the rest of the world. we have a question we want to ask if we could call it up. we want to ask the ceos in the room where are you investing and hiring in 2013, in which region, the united states, hassen america, africa, europe? and we'll put up the answer as soon as it comes in. let's start talking about your global growth outlooks and where you all expect growth to happen. why don't woe start with you, robert. >> you can call me bob. >> sorry. >> the striking thing is that over the past five years two-thirds of global growth has come from developing countries, and as recently as the '90s, that number would have been in
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the 20s. and u.s. exports have gone from 25 percent to developing countries to 50%. so you've got combined with what we heard about europe and in a sense the dem cardiovascular problems in japan, you've got a big shift in the international system going on. and a lot of those countries will also have challenges like in china with avoiding the middle income trap and the social shift. but what i want to connect to, the stuff we're doing at home in the united states isn't enough. the united states then needs an international economic strategy so that it can leverage a domestic revival with a new international growth system. because the old system is no longer going to exist in the old form, and you've got these rising economies, and, you know, you've got markets there. africa grew at 5-6% a year for a decade before the crisis and is now back on a growth trajectory. so there's opportunities in every one of those developing markets. >> can these markets keep up the
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pace of growth that they've demonstrated in the last ten years? we're already seeing china slow down. is the last ten years a signal of what -- >> it varies by economy. china is slowing down. you've got less labor coming into the market, and that goes to this critical issue of what we did with our report with china about the middle income trap, how you increase -- keep productivity, how you keep growth going when you start to get $5-$6,000 a year per capita income. this creates opportunities. they're going to have to open the service sector which would actually help the united states. the trade patterns, the logistics, the supply chains, the investment. i was talking with one of the ceos today, or last night whose major company was bought out by a chinese country. what's important for the people to recognize is not just in trade or growth but whether it's investment, tourism, supply exchange, the system is going to
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go through a transformation. each of those provide, actually, some opportunities. >> austan, growth -- >> well, look, the u.s. has been growing, you know, maybe 2% which is not good, and that's the fast of pretty much the whole advanced world. and, i mean, that tells you what's, what is wrong and has been wrong. it's a mess for most of the developed -- >> what do you make of this answer,? we have the -- >> well, if you look at the u.s. context, other than the 6-9 months of bumpiness, i think the prospects are not bad in the u.s. the fact that major companies are investing is likely a forward-looking indicator. the population's up about ten million since the recession started, household formation's been close to zero, we got way overbuilt in housing. historically, housing-related -- call it construction, real estate, you know, some household-o cented manufacturing -- is about a third of a normal expansion. it's a iley cyclical part of the
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economy, and we've gotten literally zero from that from multiple years. so as we start to turn the corner, even if it doesn't go back to the go-go days to have 2000s, that's till going to add some -- still going to add some significant component to the growth rate in the u.s., and, you know, we could probably get up someplace well above 2%. so i don't think these, i don't think those numbers are that surprising. i do think on average e memorying markets -- emerging markets tend to grow faster, they start from a low base, but when they go wrong, they go terribly wrong. i think we want them to keep growing the way they've been growing. i mean, as bob said, that's -- europe's at best going to be stagnant in the medium term. japan has had a well-documented growth problem. and so it has to come from the
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merging markets theater. i mean, if we're going to shift to exports and investment-led growth, it's going to naturally be to those markets. >> michael, is this a vote of confidence -- >> i'm not sure that you can just take those numbers at face value. i'd like to know where the existing investment is. those percentages should be compared to their base as well. >> well, this is -- we asked them where they're increasing investment and hiring the most -- >> yeah. but the increase could be because they've got a lot of stuff they're replacing. you increase at 10%, but that doesn't mean that all of it is new stuff. second of all, the u.s. has a variety of things that could lead us to stronger growth. we should be growing at over 4% for several years out of such a deep recession compared to recoveries from previous deep recessions. it's been delayed for a variety of reasons, it's probably not
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worth arguing about the causes here. i think some of it was policy probably more than austan would, but we can skip that. in asia i think the big issue is china, and i think they're going through a leadership transition, and whether they're going to embrace the kinds of reforms that the world bank and china development research foundation group suggested de-emphasizing state enterprises, emphasizing exports and a varian -- variety of things of that sort, land and labor and financial reforms, the pace of that is still very much up in the air. and the good news is if they have financial or real estate set of problems, they have such large foreign reserves -- 3.3 trillion -- such a high saving rate that they can, and a political system that can cover it, okay, rather than fight about it. so i think that this is somewhat revelatory but not diss positive. i think -- dispositive.
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i think the u.s. has put some takes, i think the fiscal cliff is one. i think getting capital is a big drag, but on the other hand you've got energy prices low, you've got -- or low relatively, especially for natural gas. you've got, um, housing having apparently hit bottom and starting to turn. so there are a variety of things. you've got a lot of money on the sidelines -- >> so you raised china, let's talk about china for a second. united states, europe, japan, latin america, asia excluding china, every one of those regions has experienced a financial and economic crisis in the last 20 years. china stands out as not having gone through such you are the policy. can they continue, can they keep that up, or is china the next country that we have to worry about for some kind of economic upheaval? start with you. >> start? well, the short term i think what's important for people to understand this year with the
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political transition is the chinese leadership has a real fear of inflation, and in the goes back to '89. so they were going to err on the side of being careful with, also with food prices, higher inflation. now that they are pretty much through that, what you can start to see is they've got the resources to be able to avoid a hard landing. but the critical question which michael raises and this china report raised they themselves realize they can't rely on the growth they had over the last 20 years. even though they were growing 10% a year. and what they're talking about the fact is they haven't upside taken some of -- undertaken some of these serious reforms. as the labor force shrinks, there'll be more people leave anything the next five years than coming in, they have to move up to value added chain. so i think what you see right now is a bit of a debate as people say, look, should we
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avoid kind of a hard landing by doing what we did in the past, credit expansion, more investments, with others who say, yeah, we can do that, but that will build the basis of future problems, so we feed to start to make some of of these structural shifts. and the way china works is kind of incremental. and i think gin ping who i've gotten to know over the years, he's a good chairman, but you've got factual powers, state-owned enterprises, so i would expect they will move in this direction, but they'll move in a somewhat gradual process. and what i share with people is that governor joe of the central bank said watch the third -- [inaudible] of the 18th party congress. third is about a year from now, and then you'll kind of see the shape of this going forward. but the bottom line is if they don't make some of these changes, they have the resources to cushion it. but, yes, the history -- there's a lot of imper fissions in that market, in pricing, credit and ores, and the history of the markets is you've got to move the reform process.
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but it's true -- >> high growth covers up a lot of problems. >> right. >> and when you slow -- >> right. and growth is slower. >> only grows until it stops. >> doesn't grow anywhere. >> and growth is slowing. >> you asked about financial -- look, there's economic reform and what will be the long run growth rate, and then there's the is it a property bubble, is there a financial bubble. i think one reason why they've accumulated such huge reserves is the implicit understanding that there's potentially some major capital holds in the banking system that people gotta think about. i peen, it's hard -- the governor told me that median house to loan value in china is only 50%. implication being so there won't be a big problem like there was in the u.s. i think maybe the problem with that is the debt isn't held by the homeowner, it's -- there's
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now a huge debt accumulated at the level of the builders. i think there's a danger. the financial space of the chinese banking system, i think there's a danger in that. i think the chinese are aware of it. you know, their trying to think it through. the second thing is you don't really know, we don't know. there's no way you can take the official data or the official accounting and determine, ah, here's what the situation is. i had a colleague. the following has changed a little, but it's still basically true. he studied chinese gdp. he said in the u.s. the data comes out a month after the quarter ends, and it's revised for up to two years. and sometimes those revisions are big. end of 2008 went to -3.5 to now -8.9. in china the data comes out the day after the quarter ends, and it's never revised. so the question is, why wait until the last day of the quarter? [laughter] >> they tell you what it was
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going to be. >> now they wait seven days or something like that. but i just think you learn more about the actual details of china. as you guys know from talking to people who are doing business, if you talk to fred smith and say how's the, how are the packaged shipping coming out of china, a lot of times that can more informative than -- yeah, or electricity. >> you all think china can manage this transition. the lesson of the last 20 years is there aren't soft landings. >> i'm nervous about that. [inaudible conversations] >> i think, i think that's correct. i think that there's a risk of a harder landing, and remember, slowing from 10% growth to 8% growth, you know, is equivalent of us going from 2 to 0. but going from 10 to 5 would disemploy massive amounts of people and stop the opportunity for massive migration from the countryside into the cities seeking employment and create a lot of instability in the country. so they want to keep growth up.
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bob's right that they have this fear of inflation for lots of reasons, historical, and they actually had serious inflation, and the inflation was in commodities that are a large part of the typical chinese person's budget, food and energy, much larger than here. so they're not happy with our extremely loose monetary policy. they feel it's exporting inpolice station to them -- inflation to them, etc. so that's an issue. but i do believe they're capable of acting quickly and filling the hole in the banks. that's a much harder thing. we didn't do that. the president had a proposal, secretary geithner in march of 2009, but it didn't go very far, so we've had a gradual recapitalization of banks. they've raised ability 300 billion in capital, although the assets have gotten more -- [inaudible] in bankings. recapitalized by fed policy basically implicitly taxing savers. >> let's talk about the fed and the world central banks for a
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second. central banks have pumped $11 trillion into the global economy in the last four years. if you rook at -- if you look at the balance sheet extensions. is this going to end badly, all the money central banks are pumping into the world economy? why don't we start with you, michael? you've written about -- >> i think it's a serious risk. i don't think it's imminent, but i'd make two comments about it. one is it certainly appears that these extraordinary types of quantitative easing, nontraditional measures hit diminishing returns a while ago and are doing very little good now, and the more that's done, the harder the exit strategy will be. usually the fed just has one policy lever it has to worry about, its short-term fed funds rate. often in the past raising it in time to forestall future inflation has been too late or a bubble as we had in the last decade. partly for political pressure, partly for human inability to
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forecast the future, now they're going to have a doubly difficult thing because they have to shrink the balance sheet as raising interest rates, so it's more complex. they have tooled to do it, raising interest on reserves at the fed, etc., but the question is whether the complexity of it all and the political pressure will wind up causing serious problems down the road. they're going on in the a situation where they're going to have to be raising interest rates and taking capital losses simultaneously. that's awkward. >> so i think you had regular breakfast for lunches with the fed chairman. do you think this central bank is up to the task of exiting? >> look, the thing is i knew chairman bernanke before when he was just an academic and all of the -- i joke he was in the monetary economics group at the npr. everybody in the monetary economics group at the nbr would wake up in the morning and look in the mirror and say, you know, why not me?
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and then starting sometime around 2008 -- [laughter] oh, he's messing it up. thank god it's him and not me. look, the thing is if i'd are told you 15 years ago we would be in a moment in which gdp is less than 2%, inflation, core inflation in the u.s. is well below the 2% target and unemployment has been at or around 8% for multiple years in a row, everyone would have said, well, obviously, you should be loosening monetary policy if that's the circumstance. and if you plug into the formula what should the fed funds rate be, it still says the fed funds rate should be something like meg 3%. -- -3%. so therein is why i think it's totally understandable why bear man i key and the fed are trying to do something to loosen monetary policy when interest rates are zero. it's just that it's not -- i agree with mike that the effectiveness of that was
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highest on the first qe and then the second and then -- >> be is this, is this a risk that the men and women in this room have to -- >> sure. >> -- think about, inflation, a collapse of the dollar? are these, where would you put that on your list of concerns? >> first, as has already been said, diminishing returns. second, you have to watch where the risks start to rise. so if you look, for example, at farmland prices in the midwest, they are above in real terms the late '70s highs. now, you don't have the same leverage, but some of the rental prices and others. so i think each market you have to watch where is the money going, where is it going in terms of perhaps some asset price inflation as opposed to goods price inflation. the third thing is to be fair to the fed, it's because other people haven't been doing their job, so that brings us right back to the discussion about the budget package and ore aspect -- other aspects. that is critical so that we can start to unwind some of this
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highly unusual stuff. and the last thing, to connect it back to all these international changes, the foreign minister of australia said something to me which really struck me. he said the united states is one budget deal away from restoring its global preeminence. he was talking about sending the message to the world that the united states can get it political system to act, and it can lead. because europe's not going to lead, japan's not going to lead, china is, as you described, and others are kind of waiting for the united states. so big, big stakes on the table. >> so we've been talking a lot about risks. let's bring up the next question we've got for the group. we want to ask all of you, what are the risks that you can control and you can't control, we want to talk about your biggest worry on the global landscape. this is in the realm of worries that you can't control. a u.s. fiscal cliff crack-up, a euro crisis, a china slowdown, a middle east energy crisis or some other risks.
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>> where's iran? >> so we'll put that in with energy crisis. >> other, huh? >> no, no, i think that belongs in number four. while our executives are giving their answers, i want to ask each of you what, what's the risk that the men and women in this room, that should be keeping them up at night right now? >> look, i think there are many ironies surrounding the fiscal cliff. the fiscal cliff, i think, in the short run is the most pressing thing. the biggest, most threatening is the euro crisis. i'm of the view ultimately either the germans will have to subsidize permanently to hold it together, or else the eurozone is probably doomed to break apart. but on the fiscal cliff, let's just get our heads around the correct numbers which is if we sign a long-term grant bargain budget deal, we're going to be doing the fiscal cliff every
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year for the next ten years, okay? so the thing that's happening with the fiscal cliff is made worse by the fact that it's going to happen without a lot of preparation, and it's not fully thought through if the sequester just kicks in. but we've got to do four trillion over ten years. so that's, you know, approximately 400 billion a year that -- you're like, get used to it. this is the business we've chosen, you know, as they say in the godfather movie. [laughter] the second thing to think is if you're sitting in this room, here's what i think you should be afraid of or be thinking of, and that is i didn't mean to influence the vote. [laughter] [inaudible conversations] >> in 1986, okay, we never had a tax reform that raised revenue before. and always when we've done big tax reforms, the way we do it is it comes down there's winners and losers, and so they essentially say, okay, well,
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look we're going to give a bunch of people a tax cut, and others are going to be held the same. in 1986 let's remember they weren't actually able to make it revenue neutral on individuals. at the last minute, they came, and they put it on corporations. and they said we'll make it a tax cut, but corporations will have their taxes go up. there is a danger that happens again, that they go into it and say, well, we want to broaden the base, where are we going to get the money? let's go try and stick t on corporations, and i think -- >> alan's got a question. >> we have one question that's comes in. is a $4 trillion grand bargain large enough given the continuing growth of the debt, and how worried are you about interest rates impacting on the future -- >> it's step one where fiscal cliff is sort of one a and the $4 trillion people are talking about if it's done properly would actually be quite
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expansionary, in my view, including helpful short term as long as there's not a big front loading of tax increases. especially tax increase, any tax increase. and spending cuts. i think all the data suggests that. i would say on, is it a large enough, if it starts to include a serious entitlement reform that grow in the second and third decade, it's a very good down payment. but there is a risk that interest rates will rise for a variety of reasons, inflation expectations taking hold in two or three years, whatever happens to be. i'd say that the single best thing we could do is do a real serious debt reduction deal. the studies aye done and i've studied, the estimates i've made is we stay on the current debt path as predicted in the president's budget or the cbo. we could wind up bringing growth virtually to a halt in a generation using higher debt ratios from expected higher
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taxes and financial instability, etc., on growth say from the imf. and that the political pain of the debt reduction would be offset by a large economic gain in higher standards of living and can higher gdp per capita down the road. the problem is it doesn't show up in the short term, and it's politically painful. again, republicans aren't going to become tax collectors and shouldn't for an ever-growing welfare state. but there is a tax reform and a grand bargain that would include some revenues from base broadening and hopefully, also, from a comprehensive tax reform that would generate some extra growth that would be sufficient to perhaps get democrats to agree to serious entitlement reform. >> i'm sorry, did you want to add to that, bob? >> i was just going to say, i would like to flip this for the ceos. i think there's actually an opportunity here. because normally congress' preference is to maintain the status quo through inaction. what the fiscal cliff -- fiscal
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cliff will require some sort of action. it won't solve the problem, but the question is, how does it set up a potential solution. .. and remember, this is where none of you really understand how washington talks about tax. know was talking about a cut. they're talking about a reduced rate of growth. it's not the way you cut. where the republicans get attacked by people is to say oh, you want big cuts. all the one is a slower rate of
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increase. if it's done anyway that doesn't have disciplines or doesn't change the law, republicans will feel they have been taken to the cleaners again. i honestly think you can get a deal here, this comes back to trigger locks point. in american political system, there's interest in the senate, frankly i think jon boehner is serious, i think cantor, but it won't work as the president doesn't lead. the president has to kind of set the course in the system. you saw that in the '80s in any piece of legislation that i was part. now be the big question whether this president steps up and leads. >> what i find so interesting is on the one hand, you use the word opportunity. we see ceos in this room are saying they are investing and hiring and the united states, but they are also most worried, remarkably more worried in europe and some of these other problems we talk about, about speed what does that tell you? >> it's totally consistent.
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>> this is more imminent and that's probably why. >> it tells me there's an opportunity here but -- >> we are in trouble. >> i'm telling you, the primary barrier to getting a grand bargain has been an opposition to any revenues in the deal. in the negotiations last summer. the reason why there aren't specific papers that you can read and say, what was the deal, is precisely because things started showing up in bob woodward's book or the "washington post." each side feels they don't want to write on a piece of paper, i offer you a, you offer me be. so the whole thing is kind of in this shakespearean language. one might consider if a plan but it was totally understood what the format -- >> people have been doing deals with the congress and executive for 245 years. people figure that have to do.
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the starting point is i wouldn't put the president sitting at the table with all these guys diminishing his valley. so, you know, that's not exactly the way ronald reagan did. >> get your treasury secretary, get them up discussing the details now, not go out talking to the press. >> look, the deal of last summer did not take place in the press. it was a six week extended the duration, which they got 85% of the way he would deal. and the format of the deal -- >> you've got to get 100% to close at. >> everyone understands that there wasn't a deal. the question is, if there's going to be a deal now, will it look like the one that almost was last summer? and i think it probably will. and the framework on that deal wasn't crazy. it was basically 1 trillion on entitlements, 1 trillion on discretionary, 1 trillion on revenues, 1 trillion -- that's approximate what it is.
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there was still argument over should 1 trillion of revenue just come from high income people, should it be smaller, bigger? should the indictment, social security or medicare? all of that's important but that's basically what the deal will be. you should have in your mind it is going to be a grand bargain that's what is going to look like. it's going to be that. >> will not get that result here today. you have another question? >> isn't corporate tax rates, lower rates in a territorial system a way to stimulate economic growth? >> absolutely. a huge problem. we talked last night about differences from earlier periods, a big part of it is our tax return or higher than they were then. and our corporate tax rate has gotten much further out of line. not as far them many other countries have reduced their corporate tax or there are statutory rate is 50% higher than the oecd average. that's a big problem. all of you out there, talking
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about the fiscal cliff, that's fine whether you're going to slow plans down or not but if you think about a major, bold new investment program going into a new market, expanding a new technology center, if you're bored about the corporate tax rates going to be when that is generating cash and three, five, seven, nine years. the best thing we can do is to get something that created some lower rates and expectations that they would be giant tax increases later. >> i agree with that and i agree we should do this. but, you know, we have the highest statutory rape and went no higher than average effective rates. because we have the narrowest base of all corporate income in the world. one of the reasons we have that system is because people like us argued for many years that the more efficient thing, the better way to encourage investment was not to cut the corporate rate, it was to have massively accelerated depreciation, expensing of investment, focus
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on investment incentives rather than cutting the rate overall. i think the intuition of most economists is changing, but the way we're going to cut the rate is not by closing loopholes. it's going to come on a very painful expansions of the base, like getting rid of accelerated depreciation and things which have a valley. i think -- >> is that going to happen? >> i don't know. it should because that's one part of tax reform you could be revenue neutral in pretty straightforward way. but i'm afraid they are going, any effort to lower top marginal rates on individual side in a combat to corporations and say, they can't do it spent it would be much better to integrate the corporate personal tax for lots of reasons, for efficiency reasons, number one. number two, we did also by the end of this nonsense warren buffett pays a higher tax rate than a secretary because he's not counting the tax -- >> you can do that in about five
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years. >> that's a difficult thing. but we should be adding towards that as ago. >> is a going over the fiscal cliff, which 76 or seven of people are worried about, just the equivalent of a grand bargain? since we wind up with higher taxes and lower spending. >> is different only in thatit is only when you. a grand bargain is going to do that for 10 years, but i think that's -- >> is not sustainable. you have the alternative. there's a lot of details in this, including the alternative minimum tax. if you look at what the alternative minimum tax, they tend to be boosted. if you have a lot of state and local income tax, a lot of children, it's not going to be politically state -- sustainable. it might be a negotiating step to achieve it, and the defense cuts are also not going to be sustainable. >> you all agree that the fiscal cliff and into his budget album is the risk the men, women industry should be focusing on? we talked about other ones. what's the one that should really be keeping them up at
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night? >> well, i'd go back to this to give secretary geithner here, so we were talking about this. and often has explain what he thinks is the past do. i would ask secretary guyton what's different that's going to make a deal this time, and how are you going to use the fiscal cliff? if the answer is just we have a mandate to raise revenues, i don't think that's going to be enough. so ask them. he's close to the president on the issue. i would flip it, but i'm sort of an optimist to i think you can make this into an opportunity to address some the things we are talking about in 2013. if you keep the pressure on with the types of things as like a simpson-bowles kind of sort of fallback or requirement, but i would add one last thing that has been part of the debate. this audience has got to drive. u.s. needs a complimentary international growth initiative. we are just a country. look at where all the growth is coming from. so whether it's the types of things with the transatlantic, whether it's making the trans-pacific partnership real
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because right now it's more rhetorical, there's something she could with middle income countries with some of their structural growth agenda. there's things on the deployment side you could do for agriculture and others that the president is doing. we need an international problem and. we can't just make this an isolationist fix. >> we have about two minutes left. >> another question, how about a jobs program, get people out, collect tax money, reduce welfare cause, get people used to working again and spending 10 spent jobs have grown at about 20% of the pace of recovery from deep recessions where the jobs crisis. it's primarily because of the growth shortfall. we need economy to grow more strongly. most of the country things we've been talking about, a sensible fiscal consolidation would be good now, people would understand their tax rates are not going to go up a let down the road. corporations could begin to plan some of that uncertainty would be removed and they have some notion of what the taxes are going to paint when an chit investment start to pay off. i think there's a lot they can be done along those lines.
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>> if you look at the entitlement programs this war is not disconnected. was happening in europe is people realize if you have endless unemployment insurance and people don't end up hustling for a job. go look at what the social security disability payment increases are. some of it's been in your paper. the entitlements reform is partly, create the right incentives for people to work. >> a question here. >> i am now confused. i don't know if someone wants to own up to this question. i am now confused, 73%, i think it was 76%, of us are worried about the fiscal cliff which would cause a recession, yet not one of his forecasts say recession. what do you make of that? >> jamaica same thing. most business people do talk to, and and you may think do not think we will go off the fiscal cliff, as we run up to the election -- >> but you all say we are. >> they are not so stupid that they were let this happen. but look, they are. [laughter] they could easily be that
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stupid. and so i think in business, a lot like it will come to the last minute, but it won't happen. it will be fine. >> i think there's something you really have to understand is that both because the political system is messy and because the country's interest are deeply divided between people are collecting of people who are paying between urban and rural, between ideologically and somewhat, there isn't a coherent sense of an overall strategy that where we want to go, where we want to wind up, do we want to end up with a european social welfare state something like we were before the crisis? this big disagreements about that, and this big disagreements about how to get from here today. this notion of what to do in the short run to do with fiscal policies intimately tied up with big, big spreads between republicans and democrats to oversimplifying their differences in each party. on taxes and spending and size of government, the nature of the
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programs and what's important. even in the republican party their three types of conservatives. tax cutters, budget balances and spending limited. so it's kind of strange. but i think an important you understand that he will feel pressure. i think bob is right, it's not sustainable because the amt and other things but there's a good chance that whatever they do in a lame duck will be very modest and far from -- >> we have 45 seconds let's see each will have about nine seconds by the time i'm done talking to answer this question. can the united states economy go back to being an economy that grows 3% a year? >> definitely come and that's where, where you've got this clip was if you look at this energy store, if you look at the rise in wages in china so that now you actually have some opportunities in north america, and by the way, we should think about that as a base economically along with candidate, if you look at the -- >> united states. >> huge potential but we got to
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get the fundamentals right. >> yes, and if you end of the housing recession and even have modest construction we would already be there. >> yes, if central policies are followed, and that implies getting spending under control, entitlement reform. not only not letting tax rates go up but reforming taxes on a broader base. if we don't, the debt implies a tax rates are going to be for the broad working class, 70% you pay for all this spending. so it's hard to imagine a robust dynamic growing economy were a majority of the working population is a minority partner in their own labor. >> we are well over our time. everybody join me in thanking this panel. [applause] ♪ ♪ >> the s

Today in Washington
CSPAN November 15, 2012 6:00am-9:00am EST

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